Great Depression in the United States
Encyclopedia
The Great Depression
began with the Wall Street Crash of October, 1929
and rapidly spread worldwide. The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement. Although its causes
are still uncertain and controversial, the net effect was a sudden and general loss of confidence in the economic future. The usual explanations include numerous factors, especially high consumer debt, ill-regulated markets that permitted overoptimistic loans by banks and investors, the lack of high-growth new industries, and growing wealth inequality
, all interacting to create a downward economic spiral of reduced spending, falling confidence, and lowered production.
Industries that suffered the most included construction, agriculture as dust-bowl conditions
persisted in the agricultural heartland, shipping, mining, and logging as well as durable goods like automobiles and appliances that could be postponed. The economy reached bottom in the winter of 1932–33; then came four years of very rapid growth until 1937, when the Recession of 1937
brought back 1934 levels of unemployment.
The depression caused major political changes in America. Three years into the depression, Herbert Hoover
lost the 1932 presidential election
to Franklin Delano Roosevelt in a sweeping landslide. Roosevelt's economic recovery plan, the New Deal
, instituted unprecedented programs for relief, recovery and reform, and brought about a major realignment of American politics.
, monetarist
, Keynesian
, Austrian Economics and neoclassical economic theory
, which focuses on the macroeconomic effects of money supply, including Mass production
and consumption
. Second, there are structural theories, including those of institutional economics
, that point to underconsumption
and over-investment (economic bubble
), or to malfeasance by bankers and industrialists.
There are multiple originating issues: what factors set off the first downturn in 1929, what structural weaknesses and specific events turned it into a major depression, how the downturn spread from country to country, and why the economic recovery was so prolonged.
In terms of the initial 1931 downturn, historians emphasize structural factors and the stock market crash as well as bank failures, while economists point to Britain
's decision to return to the gold standard
at pre–World War I parities ($10.98 Pound). The vast economic cost of World War I
weakened the ability of the world to respond to a major crisis.
Banks began to fail in October 1930 (one year after the crash) when farmers defaulted on loans. There was no federal deposit insurance during that time as bank failures were considered quite common. This worried depositors that they might have a chance of losing all their savings, therefore, people started to withdraw money and changed it into currency. As deposits taken out from the bank increased, the money multiplier decreased, which means that money circulation slowed down. This led to a decrease in the money supply, and an increase in interest rate and a significant decrease in aggregate investment.
The US government's commitment to the gold standard
prevented it from engaging in expansionary monetary policy
. High interest rates needed to be maintained, in order to attract international investors who bought foreign assets with gold. However, the high interest also inhibited domestic business borrowing.
Economists dispute how much weight to give the stock market crash of October 1929. According to Milton Friedman
, "the stock market in 1929 played a role in the initial depression." It clearly changed sentiment about and expectations of the future, shifting the outlook from very positive to negative, with a dampening effect on investment and entrepreneurship, but some feel that an increase in interest rates by the Federal government could have also caused the slow steps into the downturn towards the Great Depression. Thomas Sowell
, on the other hand, notes that the rise in unemployment had peaked at 9% two months after the crash, and had fallen to 6.3% by June – he blames the later unemployment rate on the tariffs that Hoover passed against the advice of economists in that same month, and says that six months after their implementation unemployment rose to the double digit figures that characterized that decade.
The US interest rates were also affected by France's decision to raise their interest rates to attract gold to their vaults. In theory, the U.S. would have two potential responses to that: Allow the exchange rate to adjust, or increase their own interest rates to maintain the gold standard. At the time, the U.S. was pegged to the gold standard. Therefore Americans converted their dollars into francs to buy more French assets, the demand for the U.S. dollar fell, and the exchange rate increased. The only thing the US could do to get back into equilibrium was increase their interest rates.
(NRA), sought to stimulate demand and provide work and relief through increased government spending. To end Deflation the Gold standard
was suspended and a series of panels comprising business leaders in each industry set regulations which ended what was called "cut-throat competition," believed to be responsible for forcing down prices and profits nationwide.
The NRA, which ended in March 1935 when the Supreme Court of the United States
declared it unconstitutional
, had these roles:
In 1934–36, during what the U.S. Department of State calls the "Second New Deal," Roosevelt and his party added social security
; the Works Progress Administration
(WPA), a national relief agency; and, through the National Labor Relations Board
, a strong stimulus to the growth of labor unions. Unemployment fell by ⅔ in Roosevelt's first term (from 25% to 9%, 1933–1937), but fell continually until the war.
In 1929, federal expenditures constituted only 20% of the GDP
. Between 1933 and 1939, federal expenditures tripled, but the national debt remained about level at 40% of GNP. (The debt as proportion of GNP rose under Hoover from 20% to 40%; the debt as % of GDP soared during the war years, 1941–45.) Following the Recession of 1937
and the debate on "court packing
", southern Democrats joined with Republicans in a conservative coalition
to stop further expansion of the New Deal. By 1943, during World War II, all of the relief programs had ended with the exception of Social Security. The labor laws were revised by conservatives in the Taft Hartley Act of 1947.
The New Deal was, and still is, widely debated. The Great Depression and the New Deal remain a benchmark amongst economists for evaluating severe financial downturns, such as the economic crisis of 2008.
By 1936, all the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. A contributing factor to the Recession of 1937 was a tightening of monetary policy by the Federal Reserve. The Federal Reserve doubled reserve requirements between August 1936 and May 1937 leading to a contraction in the money supply.
The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold
to break up large trusts; Arnold was not effective, and the campaign ended once World War II
began and corporate energies had to be directed to winning the war. By 1939, the effects of the 1937 recession had disappeared. Employment in the private sector recovered to the level of the 1936 and continued to increase until the war came and manufacturing employment leaped from 11 million in 1940 to 18 million in 1943.
Another response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department
, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938 in an effort to increase mass purchasing power.
Business-oriented observers explained the recession and recovery in very different terms from the Keynesian economists. They argued the New Deal had been very hostile to business expansion in 1935–37. They said it had encouraged massive strikes which had a negative impact on major industries and had threatened anti-trust attacks on big corporations. But all those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth.
On the other hand, according to economist Robert Higgs, when looking only at the supply of consumer goods, significant GDP growth only resumed in 1946. (Higgs does not estimate the value to consumers of collective goods like victory in war) To Keynesians, the war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions and industrial output would fall to its pre-war levels. The incorrect prediction by Alvin Hansen
and other Keynesians that a new depression would start after the war failed to take account of pent-up consumer demand as a result of the Depression and World War.
The government began heavy military spending in 1940, and started drafting millions of young men that year; by 1945, 17 million had entered service to their country. But that was not enough to absorb all the unemployed. During the war, the government subsidized wages through cost-plus contracts. Government contractors were paid in full for their costs, plus a certain percentage profit margin. That meant the more wages a person was paid the higher the company profits since the government would cover them plus a percentage. Using these cost-plus contracts in 1941–1943, factories hired hundreds of thousands of unskilled workers and trained them, at government expense. The military's own training programs concentrated on teaching technical skills involving machinery, engines, electronics and radio, preparing soldiers and sailors for the post-war economy.
Structural walls were lowered dramatically during the war, especially informal policies against hiring women, minorities, and workers over 45 or under 18. (See FEPC) Strikes (except in coal mining) were sharply reduced as unions pushed their members to work harder. Tens of thousands of new factories and shipyards were built, with new bus services and nursery care for children making them more accessible. Wages soared for workers, making it quite expensive to sit at home. Employers retooled so that unskilled new workers could handle jobs that previously required skills that were now in short supply. The combination of all these factors drove unemployment below 2% in 1943.
Roosevelt's declining popularity in 1938 was evident throughout the US in the business community, the press, and the Senate and House. Many were labeling the recession the ‘Roosevelt Recession’. In late December 1938, Roosevelt looked to gain popularity with the American people, and try to regain the nation's confidence in the economy. His decision that December to name Harry Hopkins
as Secretary of Commerce
was an attempt to achieve the confidence he so badly needed. The appointment came as a surprise to most because of Hopkins' lack of business experience, but proved to be vastly important in shaping the years following the recession. Hopkins made it his mission to strengthen ties between the Roosevelt administration and the business community. While Roosevelt believed in complete reform (The New Deal), Hopkins took a more administrative position; he felt that recovery was imperative and that The New Deal would continue to hinder recovery. With support from Secretary of Agriculture
Henry Wallace
and Treasury Secretary Henry Morgenthau, Jr, popular support for recovery, rather than reform, swept the nation. By the end of 1938 reform had been struck down, as no new reform laws were passed.
The economy in America was now beginning to shows signs of recovery and the unemployment rate was lowering following the abysmal year of 1938. The biggest shift towards recovery, however, came with the decision of Germany to invade France at the beginning of WWII. After France had been defeated, the U.S. economy would skyrocket in the months following. France’s defeat meant that Britain and other allies would look to the U.S. for large supplies of materials for the war. The need for these materials created a huge spurt in production, thus leading to promising amount of employment in America. Moreover, Britain chose to pay for their materials in gold. This stimulated the gold inflow and raised the monetary base, which in turn, stimulated the American economy to its highest point since the summer of 1929 when the depression began.
By the end of 1941, before American entry into the war, defense spending and military mobilization had started one of the greatest booms in American history thus ending the last traces of unemployment.
s. "Hooverville" was the popular name for a town of cardboard boxes built by homeless people. The term was coined by Charles Michelson, publicity chief of the Democratic National Committee, who referred sardonically to President Herbert Hoover
whose policies were at the time blamed for the depression. Residents lived in shacks and begged for food or went to soup kitchens. Authorities did not officially recognize these Hoovervilles and occasionally removed the occupants for technically trespassing on private lands, but they were frequently tolerated out of necessity. Democrats popularized related terms such as "Hoover blanket" (old newspaper used as blanketing) and "Hoover flag" (an empty pocket turned inside out). "Hoover leather" was cardboard used to line a shoe with the sole worn through. A "Hoover wagon" was an automobile drawn by horse because the owner could not afford gasoline.
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
began with the Wall Street Crash of October, 1929
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
and rapidly spread worldwide. The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement. Although its causes
Causes of the Great Depression
The causes of the Great Depression are still a matter of active debate among economists, and is part of the larger debate about economic crises, although the popular belief is that the Great Depression was caused by the crash of the stock market...
are still uncertain and controversial, the net effect was a sudden and general loss of confidence in the economic future. The usual explanations include numerous factors, especially high consumer debt, ill-regulated markets that permitted overoptimistic loans by banks and investors, the lack of high-growth new industries, and growing wealth inequality
Gini coefficient
The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" ....
, all interacting to create a downward economic spiral of reduced spending, falling confidence, and lowered production.
Industries that suffered the most included construction, agriculture as dust-bowl conditions
Dust Bowl
The Dust Bowl, or the Dirty Thirties, was a period of severe dust storms causing major ecological and agricultural damage to American and Canadian prairie lands from 1930 to 1936...
persisted in the agricultural heartland, shipping, mining, and logging as well as durable goods like automobiles and appliances that could be postponed. The economy reached bottom in the winter of 1932–33; then came four years of very rapid growth until 1937, when the Recession of 1937
Recession of 1937
The Recession of 1937–1938 was a temporary reversal of the pre-war 1933 to 1941 economic recovery from the Great Depression in the United States.-Background:...
brought back 1934 levels of unemployment.
The depression caused major political changes in America. Three years into the depression, Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
lost the 1932 presidential election
United States presidential election, 1932
The United States presidential election of 1932 took place as the effects of the Wall Street Crash of 1929, the Smoot-Hawley Tariff Act of 1930, the Revenue Act of 1932, and the Great Depression were being felt intensely across the country. President Herbert Hoover's popularity was falling as...
to Franklin Delano Roosevelt in a sweeping landslide. Roosevelt's economic recovery plan, the New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...
, instituted unprecedented programs for relief, recovery and reform, and brought about a major realignment of American politics.
Causes
Current theories may be broadly classified into two main points of view. First, there is orthodox classical economicsClassical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....
, monetarist
Monetarism
Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...
, Keynesian
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
, Austrian Economics and neoclassical economic theory
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
, which focuses on the macroeconomic effects of money supply, including Mass production
Mass production
Mass production is the production of large amounts of standardized products, including and especially on assembly lines...
and consumption
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...
. Second, there are structural theories, including those of institutional economics
Institutional economics
Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in Thorstein Veblen's instinct-oriented dichotomy between technology on the one side and the "ceremonial" sphere of society on the...
, that point to underconsumption
Underconsumption
In underconsumption theory in economics, recessions and stagnation arise due to inadequate consumer demand relative to the amount produced. The theory has been replaced since the 1930s by Keynesian economics and the theory of aggregate demand, both of which were influenced by...
and over-investment (economic bubble
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...
), or to malfeasance by bankers and industrialists.
There are multiple originating issues: what factors set off the first downturn in 1929, what structural weaknesses and specific events turned it into a major depression, how the downturn spread from country to country, and why the economic recovery was so prolonged.
In terms of the initial 1931 downturn, historians emphasize structural factors and the stock market crash as well as bank failures, while economists point to Britain
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
's decision to return to the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
at pre–World War I parities ($10.98 Pound). The vast economic cost of World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
weakened the ability of the world to respond to a major crisis.
Banks began to fail in October 1930 (one year after the crash) when farmers defaulted on loans. There was no federal deposit insurance during that time as bank failures were considered quite common. This worried depositors that they might have a chance of losing all their savings, therefore, people started to withdraw money and changed it into currency. As deposits taken out from the bank increased, the money multiplier decreased, which means that money circulation slowed down. This led to a decrease in the money supply, and an increase in interest rate and a significant decrease in aggregate investment.
The US government's commitment to the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
prevented it from engaging in expansionary monetary policy
Expansionary monetary policy
In economics, expansionary policies are fiscal policies, like higher spending and tax cuts, that encourage economic growth. In turn, an expansionary monetary policy is monetary policy that seeks to increase the size of the money supply...
. High interest rates needed to be maintained, in order to attract international investors who bought foreign assets with gold. However, the high interest also inhibited domestic business borrowing.
Economists dispute how much weight to give the stock market crash of October 1929. According to Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
, "the stock market in 1929 played a role in the initial depression." It clearly changed sentiment about and expectations of the future, shifting the outlook from very positive to negative, with a dampening effect on investment and entrepreneurship, but some feel that an increase in interest rates by the Federal government could have also caused the slow steps into the downturn towards the Great Depression. Thomas Sowell
Thomas Sowell
Thomas Sowell is an American economist, social theorist, political philosopher, and author. A National Humanities Medal winner, he advocates laissez-faire economics and writes from a libertarian perspective...
, on the other hand, notes that the rise in unemployment had peaked at 9% two months after the crash, and had fallen to 6.3% by June – he blames the later unemployment rate on the tariffs that Hoover passed against the advice of economists in that same month, and says that six months after their implementation unemployment rose to the double digit figures that characterized that decade.
The US interest rates were also affected by France's decision to raise their interest rates to attract gold to their vaults. In theory, the U.S. would have two potential responses to that: Allow the exchange rate to adjust, or increase their own interest rates to maintain the gold standard. At the time, the U.S. was pegged to the gold standard. Therefore Americans converted their dollars into francs to buy more French assets, the demand for the U.S. dollar fell, and the exchange rate increased. The only thing the US could do to get back into equilibrium was increase their interest rates.
Political results of the depression
In the "First New Deal" of 1933-4, programs, such as the National Recovery AdministrationNational Recovery Administration
The National Recovery Administration was the primary New Deal agency established by U.S. president Franklin D. Roosevelt in 1933. The goal was to eliminate "cut-throat competition" by bringing industry, labor and government together to create codes of "fair practices" and set prices...
(NRA), sought to stimulate demand and provide work and relief through increased government spending. To end Deflation the Gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
was suspended and a series of panels comprising business leaders in each industry set regulations which ended what was called "cut-throat competition," believed to be responsible for forcing down prices and profits nationwide.
The NRA, which ended in March 1935 when the Supreme Court of the United States
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
declared it unconstitutional
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
, had these roles:
- Setting minimum prices and wagesMinimum wageA minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
and competitive conditions in all industries. (NRA) - Encouraging unions that would raise wages, to increase the purchasing power of the working class by 93%. (NRA)
- Cutting farm production so as to raise prices and make it possible to earn a living in farming (done by the AAAAgricultural Adjustment ActThe Agricultural Adjustment Act was a United States federal law of the New Deal era which restricted agricultural production by paying farmers subsidies not to plant part of their land and to kill off excess livestock...
and successor farm programs).
In 1934–36, during what the U.S. Department of State calls the "Second New Deal," Roosevelt and his party added social security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
; the Works Progress Administration
Works Progress Administration
The Works Progress Administration was the largest and most ambitious New Deal agency, employing millions of unskilled workers to carry out public works projects, including the construction of public buildings and roads, and operated large arts, drama, media, and literacy projects...
(WPA), a national relief agency; and, through the National Labor Relations Board
National Labor Relations Board
The National Labor Relations Board is an independent agency of the United States government charged with conducting elections for labor union representation and with investigating and remedying unfair labor practices. Unfair labor practices may involve union-related situations or instances of...
, a strong stimulus to the growth of labor unions. Unemployment fell by ⅔ in Roosevelt's first term (from 25% to 9%, 1933–1937), but fell continually until the war.
In 1929, federal expenditures constituted only 20% of the GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
. Between 1933 and 1939, federal expenditures tripled, but the national debt remained about level at 40% of GNP. (The debt as proportion of GNP rose under Hoover from 20% to 40%; the debt as % of GDP soared during the war years, 1941–45.) Following the Recession of 1937
Recession of 1937
The Recession of 1937–1938 was a temporary reversal of the pre-war 1933 to 1941 economic recovery from the Great Depression in the United States.-Background:...
and the debate on "court packing
Judiciary Reorganization Bill of 1937
The Judicial Procedures Reform Bill of 1937, frequently called the court-packing plan, was a legislative initiative proposed by U.S. President Franklin Roosevelt to add more justices to the U.S. Supreme Court. Roosevelt's purpose was to obtain favorable rulings regarding New Deal legislation that...
", southern Democrats joined with Republicans in a conservative coalition
Conservative coalition
In the United States, the conservative coalition was an unofficial Congressional coalition bringing together the conservative majority of the Republican Party and the conservative, mostly Southern, wing of the Democratic Party...
to stop further expansion of the New Deal. By 1943, during World War II, all of the relief programs had ended with the exception of Social Security. The labor laws were revised by conservatives in the Taft Hartley Act of 1947.
The New Deal was, and still is, widely debated. The Great Depression and the New Deal remain a benchmark amongst economists for evaluating severe financial downturns, such as the economic crisis of 2008.
Recession of 1937
The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold
Thurman Arnold
Thurman Wesley Arnold was an iconoclastic Washington, D.C. lawyer. He was best known for his trust-busting campaign as Assistant Attorney General in charge of the Antitrust Division in Franklin Delano Roosevelt's Department of Justice from 1938 to 1943...
to break up large trusts; Arnold was not effective, and the campaign ended once World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
began and corporate energies had to be directed to winning the war. By 1939, the effects of the 1937 recession had disappeared. Employment in the private sector recovered to the level of the 1936 and continued to increase until the war came and manufacturing employment leaped from 11 million in 1940 to 18 million in 1943.
Another response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938 in an effort to increase mass purchasing power.
Business-oriented observers explained the recession and recovery in very different terms from the Keynesian economists. They argued the New Deal had been very hostile to business expansion in 1935–37. They said it had encouraged massive strikes which had a negative impact on major industries and had threatened anti-trust attacks on big corporations. But all those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth.
On the other hand, according to economist Robert Higgs, when looking only at the supply of consumer goods, significant GDP growth only resumed in 1946. (Higgs does not estimate the value to consumers of collective goods like victory in war) To Keynesians, the war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions and industrial output would fall to its pre-war levels. The incorrect prediction by Alvin Hansen
Alvin Hansen
Alvin Harvey Hansen , often referred to as "the American Keynes," was a professor of economics at Harvard, a widely read author on current economic issues, and an influential advisor to the government who helped create the Council of Economic Advisors and the Social security system...
and other Keynesians that a new depression would start after the war failed to take account of pent-up consumer demand as a result of the Depression and World War.
Afterwards
Structural walls were lowered dramatically during the war, especially informal policies against hiring women, minorities, and workers over 45 or under 18. (See FEPC) Strikes (except in coal mining) were sharply reduced as unions pushed their members to work harder. Tens of thousands of new factories and shipyards were built, with new bus services and nursery care for children making them more accessible. Wages soared for workers, making it quite expensive to sit at home. Employers retooled so that unskilled new workers could handle jobs that previously required skills that were now in short supply. The combination of all these factors drove unemployment below 2% in 1943.
Roosevelt's declining popularity in 1938 was evident throughout the US in the business community, the press, and the Senate and House. Many were labeling the recession the ‘Roosevelt Recession’. In late December 1938, Roosevelt looked to gain popularity with the American people, and try to regain the nation's confidence in the economy. His decision that December to name Harry Hopkins
Harry Hopkins
Harry Lloyd Hopkins was one of Franklin Delano Roosevelt's closest advisers. He was one of the architects of the New Deal, especially the relief programs of the Works Progress Administration , which he directed and built into the largest employer in the country...
as Secretary of Commerce
United States Secretary of Commerce
The United States Secretary of Commerce is the head of the United States Department of Commerce concerned with business and industry; the Department states its mission to be "to foster, promote, and develop the foreign and domestic commerce"...
was an attempt to achieve the confidence he so badly needed. The appointment came as a surprise to most because of Hopkins' lack of business experience, but proved to be vastly important in shaping the years following the recession. Hopkins made it his mission to strengthen ties between the Roosevelt administration and the business community. While Roosevelt believed in complete reform (The New Deal), Hopkins took a more administrative position; he felt that recovery was imperative and that The New Deal would continue to hinder recovery. With support from Secretary of Agriculture
United States Secretary of Agriculture
The United States Secretary of Agriculture is the head of the United States Department of Agriculture. The current secretary is Tom Vilsack, who was confirmed by the U.S. Senate on 20 January 2009. The position carries similar responsibilities to those of agriculture ministers in other...
Henry Wallace
Henry A. Wallace
Henry Agard Wallace was the 33rd Vice President of the United States , the Secretary of Agriculture , and the Secretary of Commerce . In the 1948 presidential election, Wallace was the nominee of the Progressive Party.-Early life:Henry A...
and Treasury Secretary Henry Morgenthau, Jr, popular support for recovery, rather than reform, swept the nation. By the end of 1938 reform had been struck down, as no new reform laws were passed.
The economy in America was now beginning to shows signs of recovery and the unemployment rate was lowering following the abysmal year of 1938. The biggest shift towards recovery, however, came with the decision of Germany to invade France at the beginning of WWII. After France had been defeated, the U.S. economy would skyrocket in the months following. France’s defeat meant that Britain and other allies would look to the U.S. for large supplies of materials for the war. The need for these materials created a huge spurt in production, thus leading to promising amount of employment in America. Moreover, Britain chose to pay for their materials in gold. This stimulated the gold inflow and raised the monetary base, which in turn, stimulated the American economy to its highest point since the summer of 1929 when the depression began.
By the end of 1941, before American entry into the war, defense spending and military mobilization had started one of the greatest booms in American history thus ending the last traces of unemployment.
Hoovervilles
One visible effect of the depression was the advent of HoovervilleHooverville
A 'Hooverville' was the popular name for shanty towns built by homeless people during the Great Depression. They were named after the President of the United States at the time, Herbert Hoover, because he allegedly let the nation slide into depression...
s. "Hooverville" was the popular name for a town of cardboard boxes built by homeless people. The term was coined by Charles Michelson, publicity chief of the Democratic National Committee, who referred sardonically to President Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
whose policies were at the time blamed for the depression. Residents lived in shacks and begged for food or went to soup kitchens. Authorities did not officially recognize these Hoovervilles and occasionally removed the occupants for technically trespassing on private lands, but they were frequently tolerated out of necessity. Democrats popularized related terms such as "Hoover blanket" (old newspaper used as blanketing) and "Hoover flag" (an empty pocket turned inside out). "Hoover leather" was cardboard used to line a shoe with the sole worn through. A "Hoover wagon" was an automobile drawn by horse because the owner could not afford gasoline.
Facts and figures
Effects of depression in the U.S.:- 13 million people became unemployed. In 1932, 34 million people belonged to families with no regular full-time wage earner.
- Industrial production fell by nearly 45% between 1929 and 1932.
- Homebuilding dropped by 80% between the years 1929 and 1932.
- In the 1920s, the banking system in the U.S. was about $50 billion, which was about 50% of GDP.
- From 1929 to 1932, about 5,000 banks went out of business.
- By 1933, 11,000 of the US' 25,000 banks had failed.
- Between 1929 and 1933, U.S. GDP fell around 30%, the stock market lost almost 90% of its value.
- In 1929, the unemployment rate averaged 3%.
- In 1933, 25% of all workers and 37% of all nonfarm workers were unemployed.
- In Cleveland, the unemployment rate was 50%; in Toledo, OhioToledo, OhioToledo is the fourth most populous city in the U.S. state of Ohio and is the county seat of Lucas County. Toledo is in northwest Ohio, on the western end of Lake Erie, and borders the State of Michigan...
, 80%. - One Soviet trading corporation in New York averaged 350 applications a day from Americans seeking jobs in the Soviet UnionSoviet UnionThe Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
. - Over one million families lost their farms between 1930 and 1934.
- Corporate profits had dropped from $10 billion in 1929 to $1 billion in 1932.
- Between 1929 and 1932, the income of the average American family was reduced by 40%.
- Nine million savings accounts had been wiped out between 1930 and 1933.
- 273,000 families had been evicted from their homes in 1932.
- There were two million homeless people migrating around the country.
- Over 60% of Americans were categorized as poorPoverty in the United StatesPoverty is defined as the state of one who lacks a usual or socially acceptable amount of money or material possessions. According to the U.S. Census Bureau data released Tuesday September 13th, 2011, the nation's poverty rate rose to 15.1% in 2010, up from 14.3% in 2009 and to its highest level...
by the federal government in 1933. - In the last prosperous year (1929), there were 279,678 immigrantsImmigration to the United StatesImmigration to the United States has been a major source of population growth and cultural change throughout much of the history of the United States. The economic, social, and political aspects of immigration have caused controversy regarding ethnicity, economic benefits, jobs for non-immigrants,...
recorded, but in 1933 only 23,068 came to the U.S. - In the early 1930s, more people emigrated from the United States than immigrated to it.
- With little economic activity there was scant demand for new coinage. No nickelNickel (United States coin)The nickel is a five-cent coin, representing a unit of currency equaling five hundredths of one United States dollar. A later-produced Canadian nickel five-cent coin was also called by the same name....
s or dimeDimeDime may refer to:Currency* Dime * Dime Media and entertainment* Dime , by Guardian* "Dime" , by Beth* The Dimes, a musical group* Dime novel, a type of popular fictionSports* Dime...
s were minted in 1932–33, no quarter dollarQuarter (United States coin)A quarter dollar, commonly shortened to quarter, is a coin worth ¼ of a United States dollar, or 25 cents. The quarter has been produced since 1796. The choice of 25¢ as a denomination, as opposed to 20¢ which is more common in other parts of the world, originated with the practice of dividing...
s in 1931 or 1933, no half dollarHalf dollar (United States coin)Half dollar coins have been produced nearly every year since the inception of the United States Mint in 1794. Sometimes referred to as the fifty-cent piece, the only U.S. coin that has been minted more consistently is the cent.-Circulation:...
s from 1930–32, and no silver dollars in the years 1929–33. - The U.S. government sponsored a Mexican RepatriationMexican RepatriationThe Mexican Repatriation refers to a mass migration that took place between 1929 and 1939, when as many as 500,000 people of Mexican descent were forced or pressured to leave the US. The event, carried out by American authorities, took place without due process. Some 35,000 were deported, amongst...
program which was intended to encourage people to voluntarily move to Mexico, but thousands, including some U.S. citizens, were deported against their will. Altogether about 400,000 Mexicans were repatriated. - New York social workers reported that 25% of all schoolchildren were malnourished. In the mining counties of West Virginia, Illinois, Kentucky, and Pennsylvania, the proportion of malnourished children was perhaps as high as 90%.
- Many people became ill with diseases such as tuberculosis (TBTuberculosisTuberculosis, MTB, or TB is a common, and in many cases lethal, infectious disease caused by various strains of mycobacteria, usually Mycobacterium tuberculosis. Tuberculosis usually attacks the lungs but can also affect other parts of the body...
). - The 1930 U.S. Census determined the U.S. population to be 122,775,046. About 40% of the population was under 20 years.
See also
- Entertainment during the Great Depression
- List of recessions in the United States
- The New Deal and the arts in New Mexico
- Timeline of the Great DepressionTimeline of the Great DepressionThe Great Depression era can be divided into two parts. The initial decline lasted from mid-1929 to mid-1931. Around mid-1931, there was a change in people’s expectations about the future of the economy. This fear of reduced future income coupled by the Fed’s deflationary monetary policy resulted...
- Ham and Eggs MovementHam and Eggs MovementThe Ham and Eggs movement was an old-age pension movement in California during the 1930s. It was originally founded by Robert Noble, a controversial radio personality, and William Allen. It grew out of a pension movement similar to the one advocated by Francis Townsend. The Ham and Eggs lobby...
, California pension plan, 1938–40
Further reading
- Bernanke, Ben. Essays on the Great Depression (Princeton University Press, 2000) (Chapter One – "The Macroeconomics of the Great Depression" online)
- Bernanke, Ben. "Money, Gold, and the Great Depression" – Speech given March 2, 2004;
- Best, Gary Dean. Pride, Prejudice, and Politics: Roosevelt Versus Recovery, 1933–1938 (1991) ISBN 0275935248
- Best, Gary Dean. The Nickel and Dime Decade: American Popular Culture during the 1930s. (1993) online edition
- Blumberg, Barbara. The New Deal and the Unemployed: The View from New York City (1977).
- Bordo, Michael D., Claudia Goldin, and Eugene N. White , eds., The Defining Moment: The Great Depression and the American Economy in the Twentieth Century (1998). Advanced economic history.
- Bremer, William W. "Along the American Way: The New Deal's Work Relief Programs for the Unemployed." Journal of American History 62 (December 1975): 636–652 online in JSTOR
- Cantril, Hadley and Mildred Strunk, eds.; Public Opinion, 1935–1946 (1951), massive compilation of many public opinion polls online edition
- Chandler, Lester. America's Greatest Depression (1970). overview by economic historian.
- Cravens, Hamilton. Great Depression: People and Perspectives (2009), social history excerpt and text search
- Dickstein, Morris. Dancing in the Dark: A Cultural History of the Great Depression (2009) excerpt and text search
- Field, Alexander J. A Great Leap Forward: 1930s Depression and U.S. Economic Growth (Yale University Press; 2011) 387 pages; argues that technological innovations in the 1930s laid the foundation for economic success in World War II and postwar
- Friedman, Milton and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (1963) ISBN 0691041474 classic monetarist explanation; highly statistical
- Graham, John R.John Graham (economist)John R. Graham is an American financial economist, a professor at the Duke University Fuqua School of Business, a research associate for the NBER and a regular guest commentator on CNBC. A Phi Beta Kappa winner, Graham has accumulated a lengthy list of award winning research papers.-Professional...
; Hazarika, Sonali & Narasimhan, Krishnamoorthy. "Financial Distress in the Great Depression" (2011) SSRN link to paper - Grant, Michael Johnston. Down and Out on the Family Farm: Rural Rehabilitation in the Great Plains, 1929–1945 (2002)
- Greenberg, Cheryl Lynn. To Ask for an Equal Chance: African Americans in the Great Depression (2009) excerpt and text search
- Hapke, Laura. Daughters of the Great Depression: Women, Work, and Fiction in the American 1930s (1997)
- Higgs, Robert. Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity Oxford University Press for The Independent Institute, 2009.
- Higgs, Robert. "From Central Planning to the Market: The American Transformation, 1945–1947" Journal of Economic History, September 1999.
- Higgs, Robert. "Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War" The Independent Review, Spring 1997.
- Higgs, Robert. "Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s" Journal of Economic History, March 1992.
- Himmelberg, Robert F. ed The Great Depression and the New Deal (2001), short overview
- Howard, Donald S. The WPA and Federal Relief Policy (1943)
- Jensen, Richard J., "The Causes and Cures of Unemployment in the Great Depression", Journal of Interdisciplinary History (1989) 19(553-83) online in JSTOR
- Kehoe, Timothy J. and Edward C. Prescott. Great Depressions of the Twentieth Century' Federal Reserve Bank of Minneapolis, 2007.
- Kennedy, David. Freedom from Fear: The American People in Depression and War, 1929–1945 (1999), wide-ranging survey by leading scholar; online edition
- Klein, Maury. Rainbow's End: The Crash of 1929 (2001) by economic historian
- Kubik, Paul J. "Federal Reserve Policy during the Great Depression: The Impact of Interwar Attitudes regarding Consumption and Consumer Credit" Journal of Economic Issues, Vol. 30, 1996
- Lowitt, Richard and Beardsley Maurice, eds. One Third of a Nation: Lorena Hickock Reports on the Great Depression (1981)
- Lynd, Robert S. and Helen M. Lynd. Middletown in Transition. 1937. sociological study of Muncie, Indiana
- McElvaine Robert S. The Great Depression 2nd ed (1993) social history
- Milkis, Sidney M. and Jerome M. Mileur. The New Deal and the Triumph of Liberalism (2002) excerpt and text search
- Miller, Dorothy Laager "New York City in the Great Depression: Sheltering the Homeless", 2009 Arcadia Publishing
- Mitchell, Broadus. Depression Decade: From New Era through New Deal, 1929–1941 (1964), overview of economic history
- Parker, Randall E., ed. Reflections on the Great Depression (2002) interviews with 11 leading economists
- Rauchway, Eric. The Great Depression and the New Deal: A Very Short Introduction (2008) excerpt and text search
- Reed, Lawrence W. Great Myths of the Great Depression. Midland, MI: Mackinac Center (1981 & 2008), libertarian interpretation
- Romasco, Albert U. "Hoover-Roosevelt and the Great Depression: A Historiographic Inquiry into a Perennial Comparison." In John Braeman, Robert H. Bremner and David Brody, eds. The New Deal: The National Level (1973) v 1 pp 3–26.
- Roose, Kenneth D. "The Recession of 1937–38" Journal of Political Economy, Vol. 56, No. 3 (Jun., 1948), pp. 239–248 in JSTOR
- Rose, Nancy. The WPA and Public Employment in the Great Depression (2009)
- Rosen, Elliot A. Roosevelt, the Great Depression, and the Economics of Recovery (2005) ISBN 0813923689
- Rothbard, Murray N. America's Great Depression (1963), libertarian interpretation
- Saloutos, Theodore. The American Farmer and the New Deal (1982).
- Singleton, Jeff. The American Dole: Unemployment Relief and the Welfare State in the Great Depression (2000)
- Sitkoff, Harvard. A New Deal for Blacks: The Emergence of Civil Rights as a National Issue: The Depression Decade (2008)
- Sitkoff, Harvard, ed. Fifty Years Later: The New Deal Evaluated (1985), liberal perspective
- Smiley, Gene. Rethinking the Great Depression (2002) ISBN 1566634725 economist blames Federal Reserve and gold standard
- Smith, Jason Scott. Building New Deal Liberalism: The Political Economy of Public Works, 1933–1956 (2005).
- Sternsher, Bernard ed., Hitting Home: The Great Depression in Town and Country (1970), readings on local history
- Szostak, Rick. Technological Innovation and the Great Depression (1995)
- Temin, Peter. Did Monetary Forces Cause the Great Depression (1976)
- Tindall, George B. The Emergence of the New South, 1915–1945 (1967). History of entire region by leading scholar
- Trout, Charles H. Boston, the Great Depression, and the New Deal (1977)
- Uys, Errol Lincoln. Riding the Rails: Teenagers on the Move During the Great Depression (Routledge, 2003) ISBN 0-415945-755 author's site
- Warren, Harris Gaylord. Herbert Hoover and the Great Depression (1959).
- Watkins, T. H. The Great Depression: America in the 1930s. (2009). dexcerpt and text search
- Wecter, Dixon. The Age of the Great Depression, 1929–1941 (1948)
- Wicker, Elmus. The Banking Panics of the Great Depression 1996 online review
- White, Eugene N. "The Stock Market Boom and Crash of 1929 Revisited". The Journal of Economic Perspectives Vol. 4, No. 2 (Spring, 1990), pp. 67–83, evaluates different theories in JSTOR
- Wheeler, Mark ed. The Economics of the Great Depression (1998)
- Young, William H., and Nancy K. Young. The Great Depression in America: A Cultural Encyclopedia (2 vol. 2007)
External links
- Rare Color Photos from the Great Depression – slideshow by The Huffington PostThe Huffington PostThe Huffington Post is an American news website and content-aggregating blog founded by Arianna Huffington, Kenneth Lerer, and Jonah Peretti, featuring liberal minded columnists and various news sources. The site offers coverage of politics, theology, media, business, entertainment, living, style,...